Long-tail acquirers for medium exits
gabrielweinberg.com
gabrielweinberg.com
For the acquired company to make a difference, it is going to need to be put in control of a large number of business processes. And for it to produce productivity gains, it will likely automate away many of the existing jobs at the acquiring company. Finally, if the acquired company is in fact a failing startup (as gabe postulates), it won't have a large team, or much revenue, or have proven itself against the acquirer in the marketplace.
These things will combine to produce intense and arguably justified political resistance at the acquiring company. The old guard there will see a bunch of young whippersnappers, who just became millionaires, without any revenue, who are coming in and expecting to tell them what to do when they are the ones who've been producing profit for this company for 20 odd years.
In this view, the only way this works is if it's a Mint/Intuit-type deal, where Mint crushed Intuit's online offering to such an extent that it gained respect within Intuit.
In other words, the case I was thinking of for the medium exit was a success case not a failure case. The big co would take the success off the table and try to incorporate it into their internal processes.
I referenced an earlier post on the failure case, which was geared towards small exits for talent acquisition.
That said, I do think @antrod's point that Gabriel references is somewhat flawed if I'm understanding his point correctly.
For a public company doing an acqui-hire, dilution would likely not come into play as the amount being paid is probably small (for the acquirer) and so EPS (earnings per share) dilution doesn't really become a factor. Of course, if the deal is larger, it does, but then it's probably not an acqui-hire either.
In terms of valuing on a EBITDA multiple, that may be the case for some companies, but I wouldn't underestimate the power of feeling like they (big co) might be left out from a coming boom or be disrupted as motivation to pay a price that is not strictly based on a financial ratio. I used to work in a big co in a previous life, and if they believe it's a burning platform need, financial constraints can and will be overridden.
- acquisition price
- Redbeacon's # of employees
- Redbeacon's revenue
- reports from members of either team on how the integration is going? (this would be the most interesting)
What kind of purchase prices do we see here and how much do the founders usually get? Would love to hear from members of the communities that have been acquired and are willing to share some numbers.
What we've seen in talent acquisition valuations we've captured is the range is large ($2-$5M/engineer). While these numbers look very appealing, please note that many of these acqui-hires are paid for in part or in whole in stock which vests over time.
When the stock is coming from a publicly traded company, it is liquid and so has real value (once vested).
When the acqui-hire is done by a private company, and you receive stock, that stock is highly illiquid and the valuation is far from precise. And given market dynamics, that valuation could look very different by the time it vests.
How much of that typically goes to the engineer? I imagine that a $20 million purchase of a 10 engineer company roughly works out to $2 million per engineer, but I imagine the founders and early investors would get the lion's share.
I look forward to finding out how the acqui-hires went in about 5-7 years, much like we're finding out about Flickr now.
It will never happen for the same reason that every company doesn't employ an army of electricians and plumbers. The same applies for duct work, air conditioning, construction, architecture, food services, and on and on. Your average company also has no interest in running their own cloud setup, or data center; they'd much rather outsource that for all the obvious reasons.
Some extremely high percentage of companies will continue to outsource their software needs, exactly as is done today. There will be no broad based software acquisition binge. It's a very difficult world to specialize in, innovate in, and manage unless software and tech is what you already do.
But the whole premise of software eating the world, is its sooo prevalent, its not like hiring air-conditioning workers, its like hiring literate workers.
Writing code will be like writing essays at college and memos at work.